Topic: Government and Politics

Rent-Seeking 101

Mike Munger, chair of Duke University’s political science department and a friend of Cato, has a great essay on the waste of political “rent-seeking,” the attempt to get taxpayer money channeled through government to your favored interest (whether hungry children, municipal governments, corporations, or private individuals).

Here’s an excerpt:

In my classes, I ask students to imagine an experiment that I call a Tullock lottery, after one of the inventors of the concept of rent-seeking, Gordon Tullock.

The lottery works as follows: I offer to auction off $100 to the student who bids the most. The catch is that each bidder must put the bid money in an envelope, and I keep all of the bid money no matter who wins.

So if you put $30 in an envelope and somebody else bids $31, you lose both the prize and the bid. When I run that game with students I can sometimes make $50 or more, even after paying off the prize. In politics, the secret to making money is to announce you are going to give money away.

Take a walk along K Street in Washington, DC. It is lined with tall buildings, full of fine offices and peopled by men and women with excellent educations and a real sense of ambition, a desire to make lots of money and achieve great things. What are those buildings, those people? They are nothing more than bids in the political version of a Tullock lottery. The cost of maintaining a D.C. office with a staff and lights and lobbying professionals is the offer to politicians. If someone else bids more and the firm doesn’t get that tax provision or defense bid or road system contract, it doesn’t get its bid back. The money is gone. It is thrown into the maw of bad political competition.

Who benefits from that system? Is it the contractors, all those companies and organizations with offices on K Street? Not really. Playing a rent-seeking game like that means those firms spend just about all they expect to win. It is true that some firms get large contracts and big checks, but all the players would be better off overall if they could avoid playing the game to begin with.

This is a large part of why I think Jonathan Chait is daffy for saying that Warren Buffett should dump some large fraction of his billions on “slick political operatives” on K Street. The competition for political rents is zero- and often negative-sum. The rent-seeking game has features of both a commons tragedy and an arms race — neither being a good model for a prosperous and peaceful society. But that’s what big-government types, left and right, are asking for when they insist on keeping government money and power on the table.

Chait is no doubt right that if his political tribe had more billionaire patrons, they could win more “auctions.” Unless the other tribe has even more motivated billionaire patrons, that is. He seems not to grasp that this a mug’s game — a low-grade civil war — flatly inconsistent with the general welfare. It’s a huge waste of financial and human resources. And once the game gets started, you often get sucked in, whether or not you’d like to, just to survive. Munger:

My students ask why anyone would play this sort of game. The answer is that the rules of our political system have created that destructive kind of political competition. When so much government money is available to the highest bidder, playing that lottery begins to look very enticing. The current Congress has, to say the least, failed to stem the rising tide of spending on domestic pork-barrel projects. Political competition run amok has increased spending nearly across the board. And sometimes, you have to bid just to keep from having money taken away from you through regulation.

I think once you really grasp the logic behind the tremendous loss of welfare through destructive political competition for rents, it becomes difficult to defend big, relatively unlimited government. Chait notoriously claimed that limited-government, market liberal types (i.e., Cato types) are evidence-immune ideologues, while statist liberals like him are just plain old empiricists, following the evidence where it leads. Well, Jon Chait, open-minded empiricist, I’d like to introduce you to my friend Mike Munger.

Tom Delay Is a Virginian

One of the best arguments for term limits is that we have reached the point where members of Congress are no longer “representatives” of their districts. The latest evidence of that came in this morning’s newspaper, which says Tom Delay will be on a Texas ballot in an upcoming election even though he has now declared himself to be a Virginian. Whether Delay wants to participate in that election or not, it is interesting that he has announced his status as a “Virginian” so fast. Or perhaps it’s not fast by modern standards.

Let’s see: Bob Dole returned to Russell, Kansas, to announce his candidacy for president. When he lost, he decided to live at the Watergate here in D.C. A few years later, his wife Elizabeth went to North Carolina to become a senator. The Clintons left Arkansas and are now New Yorkers. William Weld was governor of Massachusetts, but came down to New York to run for governor there. And there’s plenty more.

We need term limits before the next generation simply assumes that this is all perfectly normal and appropriate.

Federal Ban on Internet Gambling Marches On

Yesterday, I spoke with an aide to a Republican congressman who, as far as congressmen go, is somewhat libertarian. The aide told me that much to his chagrin, said congressman will be backing the ban on Internet gambling. What’s more, the aide said the congressman actually understands the economics of prohibitions, he just thinks that this will be the one time they don’t apply.

“For some reason, he thinks this is one instance where government can actually pull it off,” the aide said.

Unbelievable.

Internet gambling is already illegal, of course. That’s why gaming sites set up and operate offshore (several are actually traded on the London Stock Exchange). Yet, it’s still a $12 billion industry in the U.S. That means government already is trying, and failing, to prohibit it.

I guess the thinking is — as it is with the drug war — that if we try just a bit harder, spend just a bit more, harass private citizens just a bit more, and give government a bit more power, we’ll be able to buck history and finally make a vice prohibition stick.

Or perhaps lawmakers know it won’t work, and don’t care. The symbolism of trying to take a moral stand against gambling is more important than the policy actually working.

According to the New York Times, the gambling ban moves to the House floor for a vote next week, where it’s almost certain to pass. Here’s the kicker:

The majority leader, Representative John A. Boehner, Republican of Ohio, announced a few days ago that the measure would be voted on this summer as part of what the Republicans call their American Values Agenda.

So because the Republicans have garnered public scorn for the unethical, corrupt, morally bankrupt way they’ve governed over the last decade, they’ve decided to make a last-ditch attempt to hold on to power by passing judgment on the morals of their constituents (most of whom, polls show, oppose the bill).

Super.

The Times piece also looks at the free trade implications of Internet gambling prohibition, often overlooked in the debate. The Goodlatte-Leach bill will certainly exacerbate existing trade tensions between the U.S. and the 80 or so countries that allow online gambling. But many of those tensions have been bubbling over for years.

This bill brings up some new problems.

Because the bill effectively deputizes banks to sniff out and eradicate gambling among their customers (the creepy privacy implications of that alone ought to kill this bill), it amounts to a piece of blatantly protectionist legislation. Its practical effect will be to shield a domestic company (PayPal, which is owned by eBay) from foreign competitors like FirePay and Netteller.

I’ve explained a bit more about how this will work here.

Thus far, when countries like Antigua have challenged the U.S. gambling ban on free trade grounds, the Bush administration has fought tooth and nail to preserve its right to police the private behavior of American citizens. That means the administration has used millions of taxpayer dollars to prevent more liberty-minded countries from making too much freedom available to U.S. taxpayers over the Internet.

Of course, kicking Antigua around is one thing. When Britain mounts a challenge, as it likely will, this will all get much more interesting.

Gotta love the party of limited government.

Mexico’s Thin Margin

NPR keeps reporting that conservative Felipe Calderon seems to have won the Mexican presidential election “by the thinnest of margins.” Thin, yes. But I wouldn’t call it “the thinnest.” At this writing, Calderon leads by 243,000 votes, about 0.5 percent in an electorate of 40 million.

John F. Kennedy defeated Richard Nixon in 1960 by about 118,000 votes out of 69 million cast, or 0.15 percent. (And that’s if you give Kennedy about 320,000 Democratic votes in Alabama, even though only five of Alabama’s 11 Democratic electors intended to vote for Kennedy. If you don’t credit the Alabama votes to Kennedy, then he would win the electoral college vote while losing the popular vote.) Nixon got his revenge eight years later, defeating Hubert Humphrey by about 500,000 votes, or 0.70 percent in an electorate of 73 million. And then of course there was George W. Bush, whose popular vote margin was about minus 500,000 in 2000.

Calderon’s margin is thin, but it is “the thinnest” only by Mexican standards, not when compared to U.S. presidential elections.

Jefferson v. Stevens

Justice John Paul Stevens recently dissented from the majority opinion in Randall v. Sorrell, the case involving campaign finance restrictions imposed by Vermont. Stevens has long argued that money is not speech, and thus restrictions on money cannot raise First Amendment issues.

Robert Bauer offers a devastating critique of Stevens’ opinion. Bauer justly says Stevens’ dissent will be “cited, for years to come, as a prime example of carelessness, close in nature to fecklessness, in treating the First Amendment issues raised by campaign finance regulation.” Bauer’s blog, his website, and his book, More Soft Money Hard Law, are essential reading for anyone who care about free speech or the future of American politics.

Thomas Jefferson once wrote, “The natural progress of things is for liberty to yield and government to gain ground.” It’s a pity a long-serving Supreme Court justice thinks government gaining ground in free speech is a good thing and even worse that he projects his own statist sympathies onto the Founders, who were nothing if not defenders of liberty.

Negative Ads Inform Voters

Last week the New York Times roiled the upcoming U.S. Senate election in New Jersey by reporting that Repubican Thomas Kean Jr. planned to produce a film claiming that his opponent, Sen. Robert Menendez (D-NJ), was implicated in a corruption investigation twenty years ago.

Critics sometimes deplore such “negative advertising” and call for restrictions on such speech or the money that funds it. Under such a scenario, the government would gain the power to approve the content and tone of electoral advertising.

The Supreme Court, however, has never recognized “improving speech” as a legitimate reason for regulating money in politics. That’s a good thing.

The Kean film, if produced, will give New Jersey voters important information. If Kean’s claims about Menendez’s past are true, surely voters would want to know that. On the other hand, if Kean is making wild charges, the voters could also draw their own conclusions about his fitness for office.

The best solution to abuses of free speech is more speech, not government control over politics.

Russ & John’s

From The Onion:

Citing a longstanding need to “restore honor and dignity to the American food-service industry,” Sens. John McCain (R-AZ) and Russ Feingold (D-WI) announced the public debut of their joint business venture Monday, a chain of integrity-themed restaurants which opened in 12 locations nationwide.

The new Russ & John’s chain, which the two senators funded privately via small financial donations of no more than $2,000 per investor, was founded on the idea that “today’s customers want quality food without all the lies and exaggerations that all too often accompany it,” according to McCain.

[…]

In an effort to avoid the “thinly veiled bribery” found in the majority of restaurants, Russ & John’s prohibit tips, disparaging them as “the worst kind of soft money,” according to the “Message From The Founders” on the restaurant’s menu. Instead, management will distribute company-issued “server grants,” intended to prevent undue influence on the waitstaff’s performance and ensure that every customer receives the same quality service.

McCain said the staff has been trained to deliver “straight talk” to customers.

“Our servers are not there to just tell you what you want to hear,” McCain said. “If a customer asks how the Zesty Three-Cheese Ranch Chicken Platter is, and if it’s not particularly good, they’re going to be up-front with you and say, ‘Frankly, the chicken is not that good.’”

“Same goes for the Lasagna Rollups, which, to be perfectly honest, are terrible,” McCain added.

The restaurants are apparently not doing well. They’re losing customers to “McConnell’s Pork Barrel,” the BBQ joint.